INVESTMENT PLANNING AND WORKS BUDGET

INVESTMENT PLANNING AND WORKS BUDGET

Investment Planning and Works Programme Section

General

Investment decisions relating to the creation, acquisition and replacement of assets on the Railways are processed through the annual “Works, Machinery and Rolling Stock Programme”. Instructions regarding the preparation of the Machinery and Rolling Stock Programme are contained in Chapter XV of the Indian Railway Code of Mechanical Department (Workshops). On the basis of the estimate of the Plan funds requirement for the ensuing year, the Railway Board lay down the financial limits (see para 609) under various plan heads (refer to Appendix I) within which the Railway Administrations are required to make out

their programme for the following years duly vetted by the Financial Advisor and Chief Accounts Officer for submission to the Railway Board by a specified date. The programmes are examined by the Railway Board and discussed. where necessary, with the General Managers and the works to be undertaken as well

as the outlays during the Budget year are decided upon.The various stages of investment planning and preparation of the Final Works Programme arc given below:-

(i) Formulation of schemes as a part of advance planning;

(ii) Submission of major schemes for advance scrutiny and clearance by the Railway Board for selection of Projects to be taken up in the following year;

(iii) Preparation of the Preliminary Works Programme within the financial ceiling laid down by the Railway Board; and

(iv) Discussions with the Railway Board and submission of the Final Works Programme.

The investment planning process through the above stages is dealt with in the following paragraphs.

Advance Planning

The preparation of the annual Works Programme of a Railway is not an isolated exercise for the year, but is part of a continuous planning process from the level of the Divisional Officer upwards. Investment proposals emanating from the Division would be those which are intended to effect improvement in operation

or remove bottlenecks etc., within the Division itself. Major investment proposals which benefit a Zonal Railway System or the Indian Railway as whole should be co-ordinated and planned at the level of the Railway Headquarters or the Railway Board, where necessary.An important requirement for effective

investment planning is the realistic estimation of project costs. Full details of the scheme must be worked out and no scheme should be included in the Railway’s Works Programme unless detailed plans and estimates have been prepared and are ready. Detailed Traffic and Engineering surveys should be carried out for new lines, gauge conversions doublings and for other line capacity works costing more than Rupees Five Crores each. In the case of yard remodelling, line capacity works i.e., goods shed facilities and important buildings the estimates should be based on plans approved and signed by the concerned departments who should scrutinise the plans carefully to avoid the need for making any substantial modifications in the required facility it a subsequent stage. If major changes in the plans/scheme/specification of works nevertheless become necessary and arc likely to lead to substantial excesses over the sanctioned estimate the changes asked for by the concerned departments should not be agreed to unless reviewed and approved by the competent

authority sanctioning the original estimate. In regard to proposals for new marshalling yards goods terminals and tranship yards etc.. work study teams should go into the actual working before formulating schemes for the additional facilities required.

It is an essential feature of the railway system as a commercial undertaking that expenditure other than that wholly chargeable to ordinary Revenue, incurred on new assets or for improvement of existing assets should be financially justified

before it is incurred. Detailed instructions regarding the financial Appraisal of Railway projects are contained in Chapter II of the Indian Railway Financial Code to which reference may be made. The cases where no financial justification need be given are contained in pale 202 of the Indian Railway Financial Code. Detailed financial implications (including financial return) should be worked out in all cases including works financed from Development Fund, Accident Compensation. Safety anti Passenger Amenities Fund or Open Line

Works Revenue . If the prescribed return is found to be not obtainable on the anticipated level of traffic, the Railway Administration should examine whether the proposal cannot he reduced in scope, or given up in favour of some other alternative. or postponed until traffic prospects improve.

When a number of works have to be carried out to achieve a common objective, the financial implications or justification should be worked out for the entire scheme as a whole. In case where the wider schemes covers two railway a joint estimate of cost should be prepared for the Railway Board’s consideration, The Railway in which the major portion of the work falls should obtain figures from the contiguous Railway for submitting joint figures of cost anti financial implication to the Railway Board.

Scrutiny of Schemes before preparation of Preliminary Works Programme

All schemes costing Rs. 20 lakhs or above should be worked out comprehensively and sent to the Board alone with full details of (i) the technical features. (ii) Cost break-up, (iii) benefit expected to accrue and (iv)

financial implications. A sketch map of each proposal should also be sent. The Railway Administration must clearly bring out the purpose of each scheme and confirm that the proposal meets the objective fully and that the scope and cost of the project have been arrived at after the fullest possible investigation including assessment of the financial implications. After the schemes have been scrutinized by the Board, the Railway Administrations should be advised of the acceptance, with or without any modifications for inclusion in the Works Programme.

Track renewal proposals costing Rs. 20 lakhs and above are initially scrutinised by the Board, keeping in view the availability of permanent way materials. progress of the works already sanctioned and other technical factors. For this purpose the Railway Administrations should send all track renewal proposals costing Rs. 10 lakhs and above together with technical data like traffic density, age, conditions of track components etc., in the form prescribed by the Board to reach the Boards office by the stipulate date. After the proposals are screened by the Board, guidelines are issued to the Railway Administrations to reframe their proposals for inclusion in the Works Programme.

Preparation of the Preliminary Works Programme

The Chief Engineer of the Railway will be primarily responsible for ensuring that the proposals prepared by the various departments are complete in all respects and are correctly prepared. The overall priorities

within the ceilings given by the Board will also be fixed by him in consultation with the General Manager and other Heads of Departments. He will be responsible for the preparation and timely submission of the Preliminary and the Final Works Programme.

In or about June/July each year the Railway Board should convey to each Railway, in respect of each Plan Head, the total outlay within which the Works Programme should be framed by the Railway. A list of the Plan Heads is given in Annexure I. On receipt of this financial ceiling the Railway Administration should take stock of the schemes already formulated and those under consideration and select for inclusion in the Works Programme within the financial ceiling such works as are expected to yield the maximum benefit to the Railway. preference being given to works in progress. Further necessary changes in the investment schedule may be made in order to work within the financial ceiling for the year such modification., being taken note of in framing the Preliminary Works Programme and revising the financial implications. if necessary.

The Preliminary Works Programme for the following year should be submitted by the Railways to the Railway Board by 1st week of September or such earlier date as may be laid down by the Board. Proper financial appraisal of each work should be given in the Preliminary Works Programme together with the comments of the Financial Adviser and Chief Accounts Officer.

The project cost should be based on firm data both as to quantity and rates at current price levels. and should any increase occur in prices during the period intervening between the initial preparation of the project estimate and its inclusion in the Works Programme. the estimate should be updated taking into account any significant changes in the wages and material prices as well as increase in freights and fares. No other increase such as on account of change in scope of the project should be allowed without prior reasons being

adduced for acceptance by the Railway Board. A sketch showing the proposal should accompany each proposal.

Each investment proposal should be accompanied by a detailed plan showing the scheduling of the project to match the traffic requirements and the financial outlay proposed for the year should be in accordance with this project schedule to enable the Railway Board to arrange for a realistic funds allocation for implementation of the programme.

In deciding the outlays for the various works Railway Administration must endeavour to progress all works in progress speedily and bring them into use at the earliest possible date. A work which has been sanctioned and for which funds have been allotted whether in the original or supplementary budget of a year should be treated as a “work in progress” for the next year and provided for as such in the programme. Such works should be grouped .

The Railway Administrations should make a realistic assessment of the amount required for each work in progress and necessary provision should be made for it in the Works Programme. In estimating the provision for works during the budget year a generous allowance should be made for those delays in execution which though unforeseen are known from experience to be so liable to arise particularly prior to inception anti during the initial stages of large projects. The provision made should take into account adjustment of charges on surveys connected with a project.

In exhibiting the outlay for the current year against individual works in the works programme, the outlay should be as per Pink Book, and in exceptional cases where the Railways propose any substantial increase in the outlay with corresponding reductions against other works, such revised outlay may be shown separately in brackets below the outlay as furnished in the Pink Book duly explaining the reasons for doing so in footnotes at the appropriate places. As far as possible only the last sanctioned costs should be exhibited. Wherever it is visualised that the cost would involve an excess over the last sanctioned cost, effective steps should be taken well in time to have the revised estimate prepared and sanctioned by the competent authority before the Works Programme is sent to the Board. In case where the revised estimates are sanctioned subsequent to the despatch of the filial Works Programme but before the end of January of the following years the same should be promptly advise to the Board to enable to the latest sanctioned cost being exhibited in the Pink Book to be circulated along with the Budget. In all cases of revised costs sanctioned by the Board, reference to the letter of sanction should invariably be indicated.

Works once introduced through a Works Programme (including Track Renewal Programme) and taken up after the estimates have been sanctioned by the competent authority should continue to be included every year till they are finally completed, except in cases where the works have reached the completion stage and where funds required if meagre could be found by re-appropriation.

The Works Programme is compiled in the following format:-

Form E. 618WORKS PROGRAMME 1975-76

Demand No................. (Figures in thousands of rupees)

Note.-Years have been shown in the form for the purpose of illustration. In respect of “Works in Progress” reference to item No. of the current year’s Pink Book and also the authority under which the work was first started should be indicated. The works should be arranged as per the Plan Heads.

The items in the Works Programme should be grouped under the following categories while compiling the Works Programmes:-

(i) New Works.

(ii) Works in Progress.

(ii) Works approved in earlier years, which have not been actually commenced and on which no expenditure has been incurred till 30th June of the year previous to the Programme year.

(iv) Works approved in the earlier years but estimates for which have not been sanctioned by 30th June of the year previous to the Programme year.

The works are further made into sub-groups of (i) Works costing more than Rupees Five Lakhs each and (ii) Works costing upto Rupees Five lakhs each. Under (ii) works costing upto Rupees two lakhs each in the case of Track Renewal works and for works costing upto Rupees one lakh each in the case of other works only lumpsum provision should be shown without detailing individual works. Within each sub-group, the works are presented under each Plan Head. A map showing the Railway System and indicating the new lines, doublings, major yard remodelling, important line capacity and signalling works which are in progress as well as proposed should be attached to the Works Programme. An alphabetical index of works and various managerial information regarding critical materials, expenditure position relating to passengers and railways users amenities etc. which will be prescribed by Railway Board should be included.

Integrated Budget.- The Annual Budget of Railways consists of assessment of earnings and expenditure forming part of Revenue Budget and that relating to the investment decisions taken through the Works Machinery and Rolling Stock Programmes. In order to co-relate the decisions relating to all these aspects, a consolidated budget called integrated Budget including Revenue Budget, Works Programme and the Machinery and Rolling Stock Programmes should be submitted by the Railways along with the preliminary Works Programme. The Integrated Budget will include the projections of traffic and earnings, working expenses, the estimated financial results for the ensuing year, and the operating ratio in the proforma specified by the Railway Board. The Railways should also furnish the details of Rolling Stock required on replacement account and addition account, duly co-relating it to the anticipated increase in traffic. In

the covering note to the Integrated Budget the Railways should bring out the effect of the budget proposals on the efficiency of operations as indicated by the operating ratio and the financial viability of the system as revealed by the financial returns on capital investment. After discussion of the Preliminary Works Programme, a revised Integrated Budget should be submitted along with the Final Works Programme duly taking into account the changes that might have taken place in the meantime. The Integrated annual budget may be prepared under the personal guidance of the General Manager and with the assistance of Financial Adviser and Chief Accounts Officer.

Final Works Programme

After having examined the individual Railways Programme, and discussions with the General Managers, the Railway Board will decide the works which should be undertaken during the following year and which should be included in the Final Works Programme. The Railway Administration will then modify their Works Programmes as a result of the Board’s decision and send their Final Works Programme to the Railway Board by the stipulated date.

Section II- Works Budget

Works Budget.-The revised and budget estimates for the construction, acquisition and replacement of assets are briefly known as Works Budget. The revised estimate gives an estimate of funds required for the current year and the budget estimate refers to the following year. For a detailed study of the Railway Budget, Chapter III of the Indian Railway Financial Code should be referred to. The budget estimate for the works are based on the Works Programme approved by the Board. The requirement of funds both for new investments and for works in progress are submitted in the form of “Demand for Grants” in the Works Machinery and Rolling Stock Programme which forms a part of the Budget papers presented to the Parliament. While compiling the Works Machinery and Rolling Stock Programme for presentation in the Parliament only works costing Rupees five lakhs and above are itemised.

Demand for Works Grants

The proposal of Government in respect of sums required to meet the expenditure from the Consolidated Fund of India are to be submitted in the form of Demands for Grants to the Parliament. The Demand shall be for gross expenditure, the credits or recoveries (refer to para 335 of Indian Railway Financial Code) being shown in the form of footnotes to Demands. The Demand for Grants for the Works Budget is :-

Demand No. 16 :- Assets-Acquisitions, Construction and Replacements.

Financing of Works Budget

Works chargeable to Demand No 16.- Assets-Acquisitions Construction and Replacements are financed from railway revenue when it is charged to OLWR or financed from Capital. Depreciation Reserve Fund. Development Fund, Accident Compensation Safety and Passenger Amenities Fund. Expenditure budgeted under “Capital” involves increase in the Capital-at charge of the Railways and hence is the liability for payment of dividend to General Revenue subject to the relief/exemptions granted by the Convention

Committee. “Works Expenditure” of the Railway is thus financed from Revenue, Railway Funds and Capital provided by the General Revenues. The Railway Funds are Depreciation Reserve Fund, Development Fund and Accident Compensation Safety and Passenger Amenities Fund. For Details regarding the operation of the funds, reference may be made to Chapter III of the Indian Railway Financial Code. In the event of the railways revenue surplus not being adequate to fully meet the requirements of Development Fund Expenditure, the budgetary support from the General Revenues would also include temporary loans to finance expenditure from the Development Fund. The expenditure under works Budget of the Railways is, therefore. determined by the resource allocation under various Plan Heads.Credits or Recoveries. There are certain credits or recoveries which are excluded from the scope of the Demands presented for vote of Parliament. (Refer to para 335 of Indian Railway Financial Code for details). Though these credits or recoveries are outside the scope of the Grants. they are booked in accounts as reduction of expenditure, e.g. credit for released materials. A list of credits or recoveries which should be excluded from the scope of the Demand should be sent in Form 315F along with the revised estimates of the current year and budget estimates of the ensuing year under each Demand.

Distribution of Funds by the Railway Board.-The Grants as voted by the Parliament and the appropriations for charged expenditure (for details of ‘voted’ and ‘charged’ expenditure reference may be made to paras 302 and 303 of the Indian Railway Financial Code) as sanctioned by the President are distributed by the Railway Board among the Railway Administrations and other authorities. subordinate to them as soon as possible after the Budget is sanctioned. The sums so distributed are called “Allotments” and the orders by means of which the allotments are made are called “Budget Orders”. The allotments made out of funds voted by the Parliament are shown as “Voted” and those fixed by the President are shown as “Charged”.

The Budget Orders are accompanied by the final issues of “Demands of Grants” and “Works Machinery and Rolling Stock Programmes” containing the detailed distribution of the Budget allotment made to railway

administrations for working expenses and Capital, Depreciation Fund’, Development Fund, Open Line Works (Revenue) and Accident Compensation, Safety and Passenger Amenities Fund expenditure. The Budget allotment made to railway administration is intended to cover all charges including the liabilities for past years to be paid during the year or to be adjusted in the accounts for it. It shall be operative until the close of the financial year. Any unspent balance shall lapse and shall not be available for

utilisation in the following year.

In the event of the Budget Orders of the Railway Board not being received before the commencement of the financial year, the railway administrations are empowered to incur expenditure pending the receipt of the Budget Order on works which were in progress at the end of the previous financial year. All expenditure incurred under this must be treated as a charge against the allotments eventually made for such works.

When the Budget Orders issued by the Railway Board show any reduction in the estimate originally submitted to them, prompt measures should be taken by the railway administrations to limit the expenditure to the amounts allotted and distributed by the Railway Board.